Crash course into MP

[januson 10]

Hi...

 

For the last couple of weeks I've been very interested in MarketProfile. Finally I took a small step, to download MarketDelta and play around with it just to get a feeling.

 

I'll will certainly have to read a lot, but I couldn't wait to start this up :helloooo: so....

 

But then it suddenly hits me... Is this doable in our stockmarket, Copenhagen OMX, Nordic Exchange.

 

 

I've attached a screenshot of Novozymes, could somebody be so kind to explain something of what I'm looking at and what I should be looking at :missy:

 

This is only intended as a small teaser for my self You know.. something I can work my way out from, I learn best from examples that I can relate to!

 

Kind regards

Janus

[AgeKay 10]

Forget MP. Instead, look at JPearl's thread series "Trading with Market Statistics" in this forum. You'll get a lot more out of it.

[januson 10]

I'll do that.. thank you

 

I think I maybe will put MP at standby for the moment, Market Statistics looks interesting.

[lote_tree 10]

I'd never trade without an MP chart. It's too valuable to leave out of your arsenal IMHO. But everyone has their own style I suppose.

 

Peace

[thrunner 10]

Januson, there is nothing wrong with looking at the MP levels because there are so many traders looking at them. Just as there are so many looking at the VWAP, SD1,2,3. I am not sure what data feed you are getting for the Nordic OMX (Esignal ?), but you can probably try some of the free/low cost MP indicators for Tradestation/Multicharts or Ninjatrader; and try the free VWAP indicators as well.

[AgeKay 10]

I'd never trade without an MP chart. It's too valuable to leave out of your arsenal IMHO. But everyone has their own style I suppose.

 

Peace

 

What is so valuable about MP and what are you using it for? Please be specific. For me, MP doesn't even make any sense from a logical point of view. Why does it matter at what time interval volume was formed? Isn't it completely arbitrary?

[Soultrader 12]

What is so valuable about MP and what are you using it for? Please be specific. For me, MP doesn't even make any sense from a logical point of view. Why does it matter at what time interval volume was formed? Isn't it completely arbitrary?

 

This is because you have not studied mp well enough to be able to use what mp is providing. More than the strategies revolving around mp... you need to first grasp the mp concepts. As traders use candle patterns to trade... mp can be used in the exact way. Familiarize yourself with it and you can see what type of profile we are likely to develop. If you can see the type of day we are likely to have wouldnt this be a tremendous edge? You can easily build strategies around it.

 

MP also helps show participation by the longer timeframe. This is critical information as the longer timeframe traders are the ones that create trends. Compare Trader A who is familiar with mp and Trader B who is not aware of it.

 

Trader A sees a narrow initial balance and plans a trade based on range extension. So basically he is trying to play a momentum of the IB breakout. Trader B is not aware that a narrow IB is easily upset. Hence he tries to fade the test of the low/high only to see price blow right past his entry point to breakout of the range.

 

Another example.... lets say the markets rallied strongly into the close. However Trader A spots that value placement is still lower compared to the previous day. This offers him warning signals that the late afternoon rally may have just been short covering. Hence, the following day he focuses on the short side as he thinks price is weak. On the other hand, Trader B assumes that the late afternoon rally is bullish can continues to trade from the long side the following day just to see price make small bounces and right back down.

 

These are just simple examples of what market profile can show a trader. However, knowing mp will not make you profitable. It is how you develop strategies around mp which will put the odds in your favor. A trader without a plan and strategy is destined to fail. MP simply allows me to create a roadmap for the trading day.... its like having a map in a new location. You can guide yourself alot easier than the person without one.

 

None of this will make any sense if you do not understand mp to begin with.

[momentom 10]

Great examples James.

 

Here's one more:

 

You are, say, short, and looking for a target:

 

previous days value area highs and lows and points of control are obvious points to look for the market to stop at, at least for a bounce.

[AgeKay 10]

This is because you have not studied mp well enough to be able to use what mp is providing. [...] None of this will make any sense if you do not understand mp to begin with.

 

I have studied MP well enough to understand that it gives you as much of an advantages as most technical indicators out there (i.e. none). The examples you gave could come right from a trading author - vague, non-verifiable, but a plausible narrative - after the fact. What often does the price come back to the Value Area (and why is the VA 70% and not 72% or 80%) and if fit goes away from it, how far does it go away from it? What is the reward-to-risk ratio? The big problem with MP is that it's so subjective and the things that are objective (like time period & value area percentage) are completely arbitrary.

[darthtrader 10]

The big problem with MP is that it's so subjective and the things that are objective (like time period & value area percentage) are completely arbitrary.

 

As opposed to what? Purely mechanical trading? The power of MP is that it is not an "objective" setup that will fail by the time the book has been published. Its nothing more than a way to frame price action, how you trade it is up to you.

 

From that profile posted, to me you have a balance area, then an auction down to a lower balance area. I would be looking to fade a failure of price to move back into the previous balance area or looking for a breakout at the bottom of the current balance area. You obviously need something more for the actual trade location than that but its a good way to frame the overal action.

[AgeKay 10]

As opposed to what? Purely mechanical trading? The power of MP is that it is not an "objective" setup that will fail by the time the book has been published.

 

As opposed to for example what I had mentioned in my first post: Trading the VWAP. I don't think you should use anything that comes from a book in your trading. Also mechanical trading and objective trading is not the same. Mechanical trading refers to the execution of a trading strategy, which has to be objective. You can also trade objective strategies discretionary. The thing is that you have something definite for orientation instead of the usual subjective "if it _looks like_ it's gonna do this, then maybe if it's _close_ to this, it could, maybe, maybe not, throw a dice, etc." How does a failure or breakout of an "balance area" look like. Does one trade above/below the "balance area" suffice? How much does price have to move exactly? Or is this also a gut feeling?

[darthtrader 10]

Or is this also a gut feeling?

 

No, not gut feeling. I'm simply pointing out that you are not viewing the utility of MP correctly. Its just a way to frame price action, you have to then add something else to the recipe for actual trade locations. Like James is using CCI in his videos, a tick hook at the top of a balance area is pretty good trade to fade, cumulative tick divergence at the top of a balance area after a false breakout, cumulative TICK expansion looking for a breakout, VWAP/Skew will be better at a point where the market has to make a decision as opposed to in the middle of a range, candle patterns at the top/bottom of a range fading or taking a breakout.

I just think people get way too hung up on the value area of MP. To me its pretty useless, all the good stuff are the other MP concepts and the way they frame price action and then overlay more specific stuff on top of those concepts.

[januson 10]

Interesting

As my newbie post does declare.. I know nothing about MP, which was my first motive for asking.

 

I have alot of strange thoughts about the market and one that keeps pushing me is; How long does a specific price dominant the market? Is't based at volume or time or just market sentiment, well I don't know, but one thing I do know and have experienced alot of times is that: If a market maker want the stock price to go higher, so it goes. I simply cannot understand why a market is moving up, when everything says it should be down.

 

I have played around with Footprint from MarketDelta and yeahh yeahh, quite amazing tool, but does it beat the old fashioned pivots, volumes, candles and tapeticker? Or is't only meant te be a subsidiary to it?

Shouldn't the knowledged trader know how to interpret these signals, does he really need another tool?

I know what I would choose and that would be the skeleton way.... as much as nothing to get to the edge.

 

The edge is YOURSELF and has nothing to do with a fancy tool, the TOOL is yourself and your success depends of how well you EDGE THE TOOL

 

My point is that nothing can be predicted and all comes along when times go by.. certainly there can be market trends - intraday, day or week etc., but when all boils down the price is determined by the market and not by a prediction where and how the market should interpret the previous day in todays trading ie. Market Profile.

 

It would be a nice thought though..... but if the market was that and if the market was able to let itself to be described simplyfied as this, then the market would die a very non-heroic death IMHO.

 

I've seen selling to buyers on and on for a whole day, but still the price has been increasing.. I've seen buying and buying but still the price has been downtrending. For how peculiarly it may seems I've never seen a price evolve in another way than the trend. huh...

 

My point is that... why choose yet another tool to describe the market or better... why choose a tool to let yourself into a conception that the market needs a description!

[TinGull 10]

Market Profile is a thought process more than it is a strategy. Arbitrary? hardly. Why 70%? 68.2% is one standard deviation, something that's hardly arbitrary. Some trading programs use that hard number, most round to 70% because it's "easier".

 

MP allows one to see, graphically, what the market is telling about itself. A trader who understands and respects Market Profile is better able to grasp what the market is saying over a broader time frame. Does VWAP and its "standard deviation" bands (not so arbitrary when it's related to your VWAP, is it) have it's place in folks' trading? Absolutely it does. One could use Market Profile to understand likely possibilities for price direction and then drill down to use VWAP bands to actually take the trades. I think that'd be a fine way to look at it.

 

As I started saying at the beginning...MP is a thought process more than a strategy.

[AgeKay 10]

I have alot of strange thoughts about the market and one that keeps pushing me is; How long does a specific price dominant the market? Is't based at volume or time or just market sentiment, well I don't know, but one thing I do know and have experienced alot of times is that: If a market maker want the stock price to go higher, so it goes. I simply cannot understand why a market is moving up, when everything says it should be down.

 

I don't know how specialists in stock markets make a market (maybe somebody could enlighten me?), but I know how it works in limit order futures markets (most large markets) where there are no official market makers and it works like this: Price stays where it is as long as there is enough liquidity. Liquidity is simply limit orders on each side. If there are no liquidity (limit orders) at one side, then price moves in that direction. There are 2 ways how liquidity can go to zero. A) limit orders are pulled or there aren't much in the first place B) market orders that demand liquidity (because they are matched with limit orders), you could also call this volume. So there you have it, that's it. A) explains why there is so much volatility around news time, because there is simply nobody willing to place limit orders because of the increased risk. One time I could literally see in the DOM that there was a news announcement going to be even though I forgot to check the economic calendar, because all of the sudden liquidity dried up. B) is what you would see on MarketDelta, but it doesn't give you the whole picture since you could have a lot of volume in one direction and the price could still be moving in the other direction just because there are enough limit orders to keep the price from moving in that direction.

 

Market Profile is a thought process more than it is a strategy. Arbitrary? hardly. Why 70%? 68.2% is one standard deviation, something that's hardly arbitrary.[...]Does VWAP and its "standard deviation" bands (not so arbitrary when it's related to your VWAP, is it) have it's place in folks' trading?

 

Standard Deviation is another thing that has no place in trading. Not even when used with VWAP. Standard Deviation describes the expected deviation of a normal distribution, but there is nothing in trading that follows a normal distribution, be it price changes or volume. It's another idea that somebody has just taken because it has a meaning in another domain, but is has no meaning in trading. Even if it did, it treats price changes up and down as they were equal, which they are not. You have to really understand the tools you're using to realize that they don't make much sense in trading. That's the same thing why I don't think much of MP. But that's ok, use it, if you like it, I am not going to leave another comment in this thread regarding MP.

[TinGull 10]

Yea, I can't make sense of what you mean by it having no place in trading. Price always has a perceived "value"...that's why there is trade. One person feels it's valuable to own, another person feels it's not valuable anymore...they are always feeling that price has some "value". Otherwise, why put your money into something?

 

Every day there's a price that an issue spends more time at than others. Why? Because people feel that price to be the value of the day for that issue. At the end of the day is when you've got the perceived "value" of that instrument and then can see the distribution around that "value". A price change is a price change, whether it be up or down. The Market Profile is there to show you where the price change happened and when it did in correlation to other price changes throughout the day.

 

I do use it, and many other professionals use it, with success. If you can't find the usefulness in it, that's fine. I said once and will again, that's the beauty of trading! Everyone can see things differently and achieve the same monetary success.

[thrunner 10]

Standard Deviation is another thing that has no place in trading. ... I am not going to leave another comment in this thread regarding MP.

A little extreme, but thanks.

[Hlm 10]

:o This is extremely hilarious. After the first part of this thread I was planning to write out a detailed explanation with examples and illustrations, but this thread has taken a turn. How can one think they've studied TPO MP enough and have no idea where the 70% comes from? It's just simple solid statistics. Also, to say that standard deviation has no place in the market, wow. I do agree that it depends on the distribution, but MP shows you the distribution so you can act accordingly. I take it that you just use VWAP with no StdDev? I guess when you told the OP to check out Jperls threads you should have told him to ignore the second half of them as well since they deal with StdDev's. I will leave it at this...I believe TPO MP and Volume MP can BOTH be extremely helpful to a trader. I personally use both and have been very successful with them.

 

P.S. I give MP credit for getting me in and KEEPING me in for the majority of the move down on Friday. Most of my "big winner" trades come from MP areas/setups.

 

EDIT:

If you don't plan to post another comment on this thread you could always start a new thread to discuss the problems you see with MP and Standard Deviations and/or what you find useful

Edited March 15, 2008 by Hlm
Content Added

[AgeKay 10]

If you don't plan to post another comment on this thread you could always start a new thread to discuss the problems you see with MP and Standard Deviations and/or what you find useful

 

Sorry, you're basically coercing me to reply, so here it goes:

 

Yea, I can't make sense of what you mean by it having no place in trading. Price always has a perceived "value"...that's why there is trade. One person feels it's valuable to own, another person feels it's not valuable anymore...they are always feeling that price has some "value". Otherwise, why put your money into something?

 

The value you're talking about here has nothing to do with the term "value" in MP. You're talking about value in general as it might be perceived by different people.

 

 

Every day there's a price that an issue spends more time at than others. Why? Because people feel that price to be the value of the day for that issue. At the end of the day is when you've got the perceived "value" of that instrument and then can see the distribution around that "value".

 

I explained price discovery in futures markets that explains why a price stay's where it's at. The price at the end of the day is there because that's where people at the end of the trading day moved it. The price move in the last hour can undo an entire day's price move. Not because the perception of value has changed, because there are so liquidity at that time. I'll give you an example of the Dow Jones Euro Stoxx 50 Futures (FESX) because that's what I am trading: You'll need at least 500 orders to move the price in the afternoon, sometimes 2000 or more. In the evening you usually need 200, sometimes 500 orders. The volume of the 4 hours after 18:00 is less than the volume of 17:30-18:00, but it can still move as much or even more than during the entire day in the evening. So is that the 'accepted value' at the end of the day which was caused by 5% of the previous volume?

 

A price change is a price change, whether it be up or down.

 

Not when used with Standard Deviation. When the price is moving up quickly all day, the Standard Deviation is huge even though it has never really traded much down. So how accurate is it in determining the expected move to the down side?

 

I do use it, and many other professionals use it, with success. If you can't find the usefulness in it, that's fine. I said once and will again, that's the beauty of trading! Everyone can see things differently and achieve the same monetary success.

 

That doesn't mean it has any value. There are successful professionals that look at how elefants move in the morning or look at something other completely unrelated with the market place like astrology and base their decisions on that. And it has nothing to do with being successful at trading. These guys are just good at managing risk, but I don't want to get into that.

 

How can one think they've studied TPO MP enough and have no idea where the 70% comes from? It's just simple solid statistics. Also, to say that standard deviation has no place in the market, wow.

 

You're just stating your opinion and not providing any explanation. Please explain. I explained why the 'value area' in MP is arbitrarily defined and why the standard deviation makes no sense. Can you back up your disagreement with any reason? And if so, what is wrong what is said? Please be specific.

 

Btw, you sound like you came straight from EliteTrader. I like this forum because people tend to be reasonable here unlike on ET.

 

I take it that you just use VWAP with no StdDev? I guess when you told the OP to check out Jperls threads you should have told him to ignore the second half of them as well since they deal with StdDev's.

 

I use the VWAP without Standard Deviations and something else I have developed. There is a lot more in Jperls threads than just his indicators(VWAP & SD). For example, he explains why he believes they are useful and why he does what he does.

[Bearbull 10]

:o This is extremely hilarious. After the first part of this thread I was planning to write out a detailed explanation with examples and illustrations, but this thread has taken a turn. How can one think they've studied TPO MP enough and have no idea where the 70% comes from? It's just simple solid statistics. I personally use both and have been very successful with them.

 

P.S. I give MP credit for getting me in and KEEPING me in for the majority of the move down on Friday. Most of my "big winner" trades come from MP areas/setups.

l

 

It would be greatly appreciate if you would take the trouble to illustrate how MP concepts aided your trading on Friday.

[sydney 10]

I am not a MP trader by any means but I use value areas and pivots as possible reversal points, as such I agree with darth and james in that MP gives you an edge and ignoring such a well proven and greatly used method might just hurt your trading in the end.

[AgeKay 10]

I am not a MP trader by any means but I use value areas and pivots as possible reversal points, as such I agree with darth and james in that MP gives you an edge and ignoring such a well proven and greatly used method might just hurt your trading in the end.

 

I would like to ask everyone to be specific when they make a statement, because if you're not specific and don't provide any examples, your statement does not add any value to the discussion. In this case, how do you use the "value area", what "pivots" are you talking about and how do you use them as "possible revesal points". How do you determine that it's a "possible" reversal point and what do you do if it reverses and what do you do it it breaks through. What does reversing mean and what does not reversing mean? What edge does MP give you? Can you quantify it? How is it "well proven" and how does "greatly used" make it any good?

See what I mean? Most people talk so vague about trading tools that it's just meaningless blub...

[Hlm 10]

Sorry, you're basically coercing me to reply, so here it goes:

Sorry, I just figured you would have made a new thread as I suggested and just linked to your reply.

 

You're just stating your opinion and not providing any explanation. Please explain. I explained why the 'value area' in MP is arbitrarily defined and why the standard deviation makes no sense. Can you back up your disagreement with any reason? And if so, what is wrong what is said? Please be specific.

The value area is not arbitrarily defined. The value area that most short-term traders use is created during one day of regular trading hours. Why is this period significant? It is because that's when the big players come in and take positions within high liquidity. Now that we have a definite starting and stopping point, we want to know statistically where price spent the majority of the day. This is where the standard deviation comes in. You do make a good point that StdDev works best when you have a nice single distribution day. However, MP takes that into account. There are different ways to trade single distribution versus double distribution days. Even without taking into account any of the more detailed MP rules (distributions, # of prints, etc), just looking at the daily TPO lines you can see that price reacts very well with the current and past value area lines. Again, I agree that Volume MP (using vwap) is very important and I use it right along side TPO MP. However yes, it is my "opinion" that pure price market profile is also very important. My reply was not written to put down any trader that does not use TPO MP. Let's face it, if you can make money consistently trading moon rotations then more power to you . My reply was to counter the false (or what I believe to be false) accusations being made about the worthlessness of TPO MP.

 

Btw, you sound like you came straight from EliteTrader. I like this forum because people tend to be reasonable here unlike on ET.

EliteTrader: Hlm

Registered: 05-01-06

# of Posts: 4

Last Post: 09-29-07

 

I have nothing to hide. You're right, EliteTrader is somewhat a joke in my opinion. I am not saying there isn't good information, but the skew is heavily on the garbage side. I check it a few times a week mainly for comedic purposes. Also, I am very "reasonable". I doubt anyone on this forum would say otherwise. My posts are created without any negative emotion. I like to cut straight to the real point at hand.

 

Here...some smiles to make everything happy.

:) :) :) :) :) :) :)

[Hlm 10]

I would like to ask everyone to be specific when they make a statement, because if you're not specific and don't provide any examples, your statement does not add any value to the discussion. In this case, how do you use the "value area", what "pivots" are you talking about and how do you use them as "possible revesal points". How do you determine that it's a "possible" reversal point and what do you do if it reverses and what do you do it it breaks through. What does reversing mean and what does not reversing mean? What edge does MP give you? Can you quantify it? How is it "well proven" and how does "greatly used" make it any good?

See what I mean? Most people talk so vague about trading tools that it's just meaningless blub...

Previously you stated:

 

I have studied MP well enough to understand that it gives you as much of an advantages as most technical indicators out there (i.e. none).

With your current remarks I would have to guess that you haven't studied Market Profile "well enough". Currently I am confused if this is on or off topic with what the original poster expected. I hope the original poster can step in here. AgeKay, I would suggest that you start another thread stating exactly what you would like to discuss. Edited March 15, 2008 by Hlm
spelling

[sydney 10]

I would like to ask everyone to be specific when they make a statement, because if you're not specific and don't provide any examples, your statement does not add any value to the discussion.

 

You have a point, AgeKay... that said, it is people like you and the accusatory, almost aggressive writing style, that has kept me from participating in this forum. Too bad that we can't be cordial with one another.